A reader asked for simple tips for starting out with financial management.
#1 – track everything you spend in a month
- Analog: You can get a small notebook
- Digital: You can use an app, like Mint.Com, that you hook up to your bank accounts and cards
- Templates: here’s a budget template from Tim Ferriss
You may be surprised at the comfort that “knowing” gives you. The anxiety of “not knowing” is usually huge.
#2 – make a list of everything you owe, the minimum payments, and the rate of interest on each account
#3 – after you pay your monthly essentials, surplus cash goes to eliminate your credit card accounts (highest rate to lowest rate). Pay them off and close the accounts. Make a minimum extra repayment of $100 per week on the account with the highest rate.
#4 – saving (or debt repayment) is best done weekly, and automatically – for Americans, an IRA is a good option to consider. If you’re unsure what to do then have each adult in your house stick $100 per week into a target date retirement fund with a low-cost provider, like Vanguard.
The habit of weekly savings is powerful.
I helped a friend repay $10,000 in two years by using 100 weekly checks – her net worth when we started was negative $10,000. All she had was her clothes, her computer and a debt she owed. If she’d continued the savings habit then she’d have a portfolio of $75,000 now.
$100 per week from 18 to 62 years old will grow to $720,304 (5% compounding).
Financially secure parents/grandparents – consider matching earned retirement savings, this will help you to avoid supplementing consumption.
$100 per week from 12 to 30 years old will grow to $150,000 (5% compounding).
How much should you save?
If you want more info on saving for retirement then Bernstein’s ebook is a good one – it’s $0.99 on Amazon right now and a quick read.
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